Nick,
1) How does the engine work...
Books have been written about this subject. Don't expect to see the answer in a few lines in an SCN posting.
...and how is the demand propogated to the plant .
Transportation lane is considered to be a source of supply, one of several possible sources of supply. IF demand is to be propagated from a DC to a plant, it is done when the planning engine creates a supply element in the DC. When the planning engine 'decides' to create a supply elemenet in the DC, and it further 'decides' that the source of supply for a given demand should be a transportation lane, it creates an order, which automagically creates a dependent demand element placed upon the plant. I say "IF", because YOU decide which source(s) of supply are appropriate under a given planning scenario, using the planning engine of YOUR choice.
2) What are the ATP categories involved in the process .
In the end, YOU decide this. In SNP, the most commonly used supply element for DCs is 'EA' , which normally automagically creates a demand element 'EB' in the plant. You can decide to use other elements as well.
Best Regards,
DB49